Skin in the Game: Hidden Asymmetries in Daily Life (Incerto, #5)

by Nassim Nicholas Taleb

Likewise the crux of the idea of The Black Swan was Platonification, missing central but hidden elements of a thing in the process of transforming it into an abstract construct, then causing a blowup.

Start by being nice to every person you meet. But if someone tries to exercise power over you, exercise power over him.

Any meaningful disruption of such symmetry—with transfer of liabilities—invariably leads to an explosive situation, as we saw with the economic crisis of 2008.

Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice.

One, the fool, takes risks he doesn’t understand, mistaking his own past luck for skills, the other, the crook, transfers risks to others.

But disincentive is not enough: the fool is a real thing. Some people do not know their own interest—just consider addicts, workaholics, people trapped in a bad relationship, people who support large government, the press, book reviewers, or respectable bureaucrats, all of whom for some mysterious reason act against their own interest. So there is this other instance where filtering plays a role: fools of randomness are purged by reality so they stop harming others. Recall that it is at the foundation of evolution that systems get smart by elimination.

You do not want to win an argument. You want to win.

We are much better at doing than understanding.

There is a difference between a charlatan and a genuinely skilled member of society, say that between a macrobull***ter political “scientist” and a plumber, or between a journalist and a mafia made man.

You may not know in your mind where you are going, but you know it by doing.

What people “think” is not relevant—you want to avoid entering the mushy-soft and self-looping discipline of psychology. People’s “explanations” for what they do are just words, stories they tell themselves, not the business of proper science.

Revelation of preferences is best understood by the betrothed: a diamond, particularly when it is onerous to the buyer, is vastly more convincing a commitment (and much less reversible) than a verbal promise.

Forecasting (in words) bears no relation to speculation (in deeds).

Because what matters in life isn’t how frequently one is “right” about outcomes, but how much one makes when one is right. Being wrong, when it is not costly, doesn’t count—in a way that’s similar to trial-and-error mechanisms of research.

Exposures in real life, outside of games, are always too complicated to reduce to a well-defined “event” easy to describe in words.

it is harder for us to reverse-engineer than engineer; we see the result of

evolutionary forces but cannot replicate them owing to their causal opacity.

We can only run such processes forward. The very operation of Time (which we capitalize) and its irreversibility requires t...

Skin in the game helps to solve the Black Swan problem and other matters of uncertainty at the level of both the individual and the collective: what has survived has revealed its robustness to Black Swan events and re...

Without skin in the game, we fail to get the Intelligence of Time (a manifestation of the Lindy effect, which will get an entire chapter, and by which 1) time removes the fragile and keeps the robust, and 2) the life expectancy of the nonfragile lengthens with time). Ideas have, ...

In that light—that of (causal) opacity and revelation of preferences—the Intelligence of Time under skin in the game even helps define rationality—the only definition of rationality I fo...

By definition, what works cannot be irrational; about every single person I know who has chronically failed in business shares that mental block, the failure to realize that if something stupid works (and makes money), it cannot be stupid.

What is rational is what allows the collective—entities meant to live for a long time—to survive.

Our message is to focus on those who are professionally slanted, causing harm without being accountable for it, by the very structure of their own occupation.

For the professionally asymmetric person is rare and has been so in history, and even in the present. He causes a lot of problems, but he is rare. For most people you run into in real life—bakers, cobblers, plumbers, taxi drivers, accountants, tax advisors, garbage collectors, dental cleaning assistants, carwash operators (not counting Spanish grammar specialists)—pay a price for their mistakes.

Intellectualism is the belief that one can separate an action from the results of such action, that one can separate theory from practice, and that one can always fix a complex system by hierarchical approaches, that is, in a (ceremonial) top-down manner.

Intellectualism has a sibling: scientism, a naive interpretation of science as complication rather than science as a process and a skeptical enterprise.

Those who talk should do and only those who do should talk

do your theories or mathematical representations, don’t tell people in the real world how to apply them. Let those with skin in the game select what they need.

Specialization, as I will keep insisting, comes with side effects, one of which is separating labor from the fruits of

labor.

Things designed by people without skin in the game tend to grow in complication (before their final collapse).

Anyone who has submitted a “scholarly” paper to a journal knows that you usually raise the odds of acceptance by making it more complicated than necessary. Further, there are side effects for problems that grow nonlinearly with such branching-out complications.

A confession. When I don’t have skin in the game, I am usually dumb.

I knew in my guts there were mistakes in the theories that used the conventional bell curve and ignored the impact of the tails (extreme events).

So, unlike the drug addict who loses his resourcefulness, what you learn from the intensity and the focus you had when under the influence of risk stays with you.

Many kids would learn to love mathematics if they had some investment in it, and, more crucially, they would build an instinct to spot its misapplications.

Given that regulations are additive, we soon end up tangled in complicated rules that choke enterprise. They also choke life.

The other solution is to put skin in the game in transactions, in the form of legal liability, and the possibility of an efficient lawsuit.

if you harm me, I can sue you.

Common law is about the spirit while regulation, owing to its rigidity, is all about the letter.

This doesn’t mean one should never regulate at all. Some systemic effects may require regulation (say hidden tail risks of environmental ruins that show up too late). If you can’t effectively sue, regulate.

*5

If you do not take risks for your opinion, you are nothing.

People who are not morally independent tend to fit ethics to their profession (with a minimum of spinning), rather than find a profession that fits their ethics.

Artisans have their soul in the game.

Primo, artisans do things for existential reasons first, financial and commercial ones later. Their decision making is never fully financial, but it remains financial. Secundo, they have some type of “art” in their profession; they stay away from most aspects of industrialization; they combine art and business. Tertio, they put some soul in their work: they would not sell something defective or even of compromised quality because it hurts their pride.

This is a via negativa approach: you want maximal free time, not maximal activity, and you can assess your own “success” according to such metric.

Having an assistant (except for the strictly necessary) removes your soul from the game.

Entrepreneurs are heroes in our society. They fail for the rest of us. But owing to funding and current venture capital mechanisms, many people mistaken for entrepreneurs fail to have true skin in the game in the sense that their aim is to either cash out by selling the company they helped create to someone else, or “go public” by issuing shares in the stock market.